The Bank of Japan
has put monetary policy on hold and found backing for its wait-and-see
stance from advisors to Prime Minister Shinzo Abe, who worry more easing
could send the yen to damagingly low levels, according to officials in
the administration and central bank.
This newfound caution from some of the same Abe advisors who urged the BOJ to launch its massive stimulus in 2013, means Japan is set to be an outlier at a time when central banks from Canada to the euro zone to Singapore have shocked markets by easing policy in recent days.
Concerns about the yen, along with a belief among central bank officials - including Governor Haruhiko Kuroda - that coming wage increases will support higher prices, suggest the BOJ could hold policy steady until October, months after many economists expect it to be eased.
"The environment under which the BOJ is working to hit 2 percent inflation has changed dramatically. We need to take that into account," Economics Minister Akira Amari said on Tuesday.
The BOJ stunned markets by expanding its stimulus in October last year to try to prevent slumping oil prices, and a subsequent slowdown in price growth, from causing the central bank to miss its 2 percent inflation target.
But since then, oil prices have fallen by another 50 percent. Core inflation fell for a fifth month to hit 0.5 percent in December, data showed on Friday, stoking expectations the BOJ could face pressure to ease again.
But Kozo Yamamoto, a leading expert on monetary policy in Abe's ruling Liberal Democratic Party, said last week that he expected the BOJ could even hold policy steady for the remainder of this year in the absence of some external shock.
"What more can the BOJ do? I think the central bank can hold off on action and take a wait-and-see stance for the time being," Yamamoto told Reuters in an interview last week.
YEN WORRIES
The
BOJ's stimulus, dubbed "quantitative and qualitative easing," or QQE,
has been a mainstay of Abe's pro-growth policies known as Abenomics, an
attempt to push Japan's economy out of the slow growth and deflation
that characterized the 15 years before Abe took office.
Privately, government officials in the Abe administration said the stand-back and wait comments by Amari and Yamamoto reflect a caution that any further BOJ action could drive the yen lower. That, in turn, could offset the gains to consumer purchasing power from lower prices for imported oil, they said.
"Further monetary easing is scary because if the yen weakens more, that could cause problems," one official said.
The dollar has risen 9 percent against the yen since early October and almost 30 percent since Abe was elected in December 2012.
The weak currency has been a boon to exporters like Toyota Motor but has hurt companies like discount carrier Skymark Airlines, which cited higher costs for its dollar-based aircraft leases as a reason for its bankruptcy filing this week.
Kuroda has essentially watered down his two-year time frame for hitting the BOJ's inflation target, admitting earlier this month that Japan may not see inflation hit 2 percent until fiscal 2016.
This newfound caution from some of the same Abe advisors who urged the BOJ to launch its massive stimulus in 2013, means Japan is set to be an outlier at a time when central banks from Canada to the euro zone to Singapore have shocked markets by easing policy in recent days.
Concerns about the yen, along with a belief among central bank officials - including Governor Haruhiko Kuroda - that coming wage increases will support higher prices, suggest the BOJ could hold policy steady until October, months after many economists expect it to be eased.
"The environment under which the BOJ is working to hit 2 percent inflation has changed dramatically. We need to take that into account," Economics Minister Akira Amari said on Tuesday.
The BOJ stunned markets by expanding its stimulus in October last year to try to prevent slumping oil prices, and a subsequent slowdown in price growth, from causing the central bank to miss its 2 percent inflation target.
But since then, oil prices have fallen by another 50 percent. Core inflation fell for a fifth month to hit 0.5 percent in December, data showed on Friday, stoking expectations the BOJ could face pressure to ease again.
But Kozo Yamamoto, a leading expert on monetary policy in Abe's ruling Liberal Democratic Party, said last week that he expected the BOJ could even hold policy steady for the remainder of this year in the absence of some external shock.
"What more can the BOJ do? I think the central bank can hold off on action and take a wait-and-see stance for the time being," Yamamoto told Reuters in an interview last week.
YEN WORRIES
Privately, government officials in the Abe administration said the stand-back and wait comments by Amari and Yamamoto reflect a caution that any further BOJ action could drive the yen lower. That, in turn, could offset the gains to consumer purchasing power from lower prices for imported oil, they said.
"Further monetary easing is scary because if the yen weakens more, that could cause problems," one official said.
The dollar has risen 9 percent against the yen since early October and almost 30 percent since Abe was elected in December 2012.
The weak currency has been a boon to exporters like Toyota Motor but has hurt companies like discount carrier Skymark Airlines, which cited higher costs for its dollar-based aircraft leases as a reason for its bankruptcy filing this week.
Kuroda has essentially watered down his two-year time frame for hitting the BOJ's inflation target, admitting earlier this month that Japan may not see inflation hit 2 percent until fiscal 2016.
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